Question

Which of the following is the correct formula for the asset turnover ratio?

A) Net sales / Average total assets
B) Net sales / Cost of goods sold
C) Net sales / Net assets
D) Net profit / Net sales

Answer 1

The asset turnover ratio is correctly calculated by dividing net sales by average total assets; it indicates how efficiently a company's assets generate sales.

Step-by-step explanation:

The correct formula for the asset turnover ratio is A) Net sales / Average total assets. This financial metric is used to assess how efficiently a company utilizes its assets to generate sales. It is a measure of the productivity of a company's assets. This ratio is calculated by taking the net sales generated over a period and dividing it by the average value of the total assets during that same period.